Stocks Smacked by Wal-Mart, Google

Major indexes sold off on weakness in both heavyweights' shares. Upcoming data on housing may hold the key to the market's next move
by Marc Hogan

Wall Street returned from the Thanksgiving weekend Monday to fresh worries about the holiday shopping season. Stocks finished broadly lower, as Wal-Mart's (WMT) disappointing November results raised questions about the strength of retail sales and a bearish Google (GOOG) report hampered technology stocks. Futures-related sell programs and ripple effects from the dollar's plunge against the yuan and the euro also weighed on the market, says Standard & Poor's Equity Research.

On Monday, the Dow Jones industrial average fell 158.38 points, or 1.29%, to 12,121.79, for its steepest decline since July 13. The broader Standard & Poor's 500 index dropped 19 points, or 1.36%, to 1,381.95. The tech-heavy Nasdaq composite slid 54.34 points, or 2.21%, to 2,405.92, for its biggest loss since June 5.

NYSE breadth was negative, with 28 issues declining for every six advancing. Nasdaq breadth was 25-6 negative.

The market was undergoing a "good, old-fashioned correction," according to Joe Battipaglia, executive vice-president and chief investment officer for Ryan Beck. "I suspect that investors got ahead of themselves in the last several weeks in terms of their enthusiasm for stocks," Battipaglia says. "Whether it's anything broader or deeper than a one-day correction remains to be seen."

A busy week of economic reports could go a long way toward determining the extent of the reversal. On Tuesday, investors will receive data on existing home sales, consumer confidence, and durable good orders, while Federal Reserve Chairman Ben Bernanke is set to speak.

Investors may look to the home sales numbers for clues on the depths of the housing slowdown. "The only questions insofar as the U.S. shakeout is concerned—and they are obviously quite important questions—pertain to the extent of the post-bubble downside in housing markets and the broader macro impacts of such a development," notes Stephen Roach, managing director and chief economist at Morgan Stanley.

Looking ahead, releases on new home sales, manufacturing activity, personal income, and auto sales could move the markets this week, as well. Also on tap are the Federal Reserve's Beige Book, Chicago PMI, and a revised reading on third-quarter economic growth.

Retailers were in focus Monday in the wake of the Thanksgiving holiday. Sales on Black Friday, the biggest shopping day of the year, were up 6% from last year to $8.96 billion, ShopperTrak announced. Roughly 140 million shoppers each spent an average of $360.15 over the weekend, up 18.9% from $302.81 last year, according to the National Retail Federation.

Nevertheless, Wal-Mart was lower after the retail giant said November same-store sales fell 0.1%, the worst performance in more than a decade.

Wal-Mart's lackluster sales numbers could suggest a weak holiday retail season, some analysts say. "This should be a splash of cold water for the Pollyannas among us," says David Rosenberg, North American economist at Merrill Lynch, in a research report.

Shares of Internet search company Google dipped back below the $500 mark following a Barron's report suggesting investors have ignored the stock's "exceedingly" rich valuation and slowing growth rate.

Meanwhile, Ford (F) was lower amid news the automaker plans to obtain financing totaling about $18 billion in order to address negative operating-related cash flow in the near- and medium-term and help fund its restructuring.

On the analyst front, Lowe's (LOW) was higher after Bank of America raised its rating on the stock from neutral to buy. The broker also lifted its price target on home-improvement retailer Home Depot (HD), also rated a buy.

Elsewhere, business-outsourcing provider Affiliated Computer Services (ACS) said CEO Mark King and Chief Financial Officer Warren Edwards resigned after an internal investigation into stock-options practices found both violated the company code of ethics.

In the energy markets, January West Texas Intermediate crude futures rose $1.08 to $60.32 a barrel following reports Saudi Arabia's oil minister said his country may support a second cut in OPEC's output this year to prop up prices.

European markets finished sharply lower, as the dollar's decline raised fanned worries about lower export profits. In London, the FTSE-100 index fell 72 points, or 1.18%, to 6,050.1. Germany's DAX index skidded 113.79 points, or 1.77%, to 6,318.11. In Paris, the CAC 40 index dropped 80.81 points, or 1.5%, to 5,308.65.

Asian markets ended mixed amid M&A activity. In Japan, the Nikkei 225 index rebounded 150.78 points, or 0.96%, to 15,885.38. In Hong Kong, the Hang Seng index shed 56.29 points, or 0.29%, to 19,204.01. Korea's Kospi index advanced 3.4 points, or 0.24%, to 1,425.13.

Treasury Market

Treasury prices drifted higher, recovering from opening declines as stocks fell. The 10-year note rose in price to 100-23/32 for a yield of 4.53%, while the 30-year bond rose to 98-04/32 for a yield of 4.62%.

Hogan is a reporter for BusinessWeek.com in New York.